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Cost Accounting For Dummies by Kenneth Boyd

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Chapter 7

Constant Change: Variance Analysis

In This Chapter

arrow Comparing static and flexible budgets

arrow Recognizing variances and why they’re important

arrow Using variance analysis to improve financial performance

arrow Analyzing price variances to make decisions about spending

arrow Reviewing efficiency variances to improve productivity

In Chapter 6, you review how to set standard (budgeted) prices and rates in the planning process. You budget at the beginning of the year and then review your actual results at year-end. Don’t be surprised when your actual results are different from your standards. That difference is called a variance.

When you budget, you necessarily make assumptions about total costs and levels of activity (also known as standard costs). Standard costs are based on projected prices and your planned levels of usage. If you manufacture blue jeans, you’ll determine the hourly rate you need to pay workers. You’ll also estimate the total number of hours they will work during the year. No ...

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